Equity Loans in Canada Provide Financing Solutions to Every-Day “Problems” By Bruce Owens At Isnare.com Ezine Articles

Home equity loans provide solution for home owners in Canada to get household financing planning back on track. That is, unless you have a rich uncle to smooth out the stresses of the accumulation of debt, high interest rates, and/or needing some extra cash for education opportunities or a much needed extended holiday. Equity loans in Canada can provide a financing solution for diverse “problems” from debt consolidation to home renovations to unexpected emergency expenses.

That being said, what is a home equity loan anyway? Well, first you need a home. The value of your home, minus any mortgages or debts secured against your home’s value, represents your equity. Then the loan part arises when you make a contractual promise to repay a sum of money, in exchange for the promise of a creditor to give you a sum of money, with the promise secured against the equity in your home. So combining equity and loan, as defined, you are borrowing money from a lender who knows that the property you own will be the security against the money borrowed.

The benefits of using an equity loan as opposed to obtaining an unsecured loan or using a credit card is that the interest that is established is much lower than for unsecured loans as or credit card debt. Also more good news is that, if you are accessing the built up equity in your home to support your own business or for investment purposes, the interest you pay on the loan may be tax deductible.

There are two types of equity loans in Canada: closed end and open end. A closed end equity loan (usually described as a second mortgage, or simply as a home equity loan) is when a borrower receives a lump sum of money and is not able to borrow any further, Closed end mortgages will generally have fixed interest rates and a defined repayment schedule. An open end equity loan is most often referred to as a secured line of credit. A secured line of credit is a much more flexible loan which allows the borrower to choose when and how often to borrow against the equity in the property. The lender will initially set an initial limit on the amount of money that can be borrowed under the line of credit and the interest rate will vary according to the market and the lender’s prime lending rates. Because, equity loans will only be paid off after a first mortgage is satisfied, in the event of a default in payments, the interest rates they carry will most typically be several percentage points greater than those offered for first mortgages. Nonetheless, these rates are most often far better than the interest rates applicable to unsecured loans and credit cards.

When contemplating tapping into your home’s equity, be aware that setting up a second mortgage or secured line of credit may involve some initial fees fees, which may include; appraisal fees, orginator fees, title fees, arrangement fees, closing and early pay off fees. Conveyand and surveyor costs, as well as, renewing title information fees may also be applicable, depending on how recently, or if, your home has been refinanced.

Who needs a rich uncle anyway? Many credit problems or cash flow needs can be satisfied by leveraging assets you have already accumulated in your home’s value. Your financial advisor or an accredited and knowledgable Canadian mortgage broker can help you structure the home equity loan that fits your needs and circumstances, allowing you to enjoy life without resorting to costlier unsecured loans or credit cards to solve a financial problem.

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